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Metro wants more money; without it, officials say, rail service might be cut back

Metro warns that unless Washington-area jurisdictions increase their subsidy to the transit agency by more than 10percent for the next fiscal year, subway riders could see cutbacks in service.

Metro officials have drafted a budget for the next fiscal year that includes a contribution of $892million from the jurisdictions it serves a 10.3 percent increase over the current subsidy to help the transit system meet its operating costs.

In a spending plan to be presented this week to the Metro board's finance committee, the agency's budget staff anticipates rail ridership for the fiscal year that begins in July will be about the same as the current fiscal year.

That means, for the first time in several years, Metro is projecting no increase in fare revenue whileoperating costs are rising, the agency's financial staff said. As a result, Metro will need substantially more money from the eight counties and cities that help pay for transit operations, according to the budget proposal.

1^st Article - Full

Metro board approves rail and bus fare increases:

Metrorail fares will rise by an average of 3 percent starting in July and Metrobus riders who use cash will no longer pay a surcharge, under a $1.76 billion operating budget approved Thursday by Metro's board of directors.

After numerous discussions and a half-dozen public hearings across the Washington area during the winter, the board unanimously adopted a budget that will increase the cost of a typical subway ride by about 10 cents from $2.90 to $3 in the fiscal year that begins July 1.

But the current average fare of $2.90 that Metro officials cite is merely the product of simple math: It's determined by total fare revenue divided by the number of fares paid throughout the rail system. In practice, depending on which stations riders regularly commute between, some could face fare increases significantly higher than 3 percent.

Under the plan approved Thursday, no rail fare will exceed $5.90, up from the current maximum of $5.75, Metro spokesman Dan Stessel said.

As for bus riders, the cash price of a trip now is $1.80, while SmarTrip card users pay $1.60. The board voted to eliminate the cash surcharge and set a flat $1.75 fare for all riders.

As is typical when the transit authority considers fare increases, the proposals put out for public review in January and February were varied, giving the board some leeway for its final vote. The Metrorail fare increase, for example, could have been 4 percent. The cash surcharge could have been retained, with the fare rising to $2. The daily parking fee in Metro lots and garages, which will increase 10 cents, could have risen by 25 cents.

The board's vote Thursday had none of the tension that developed during its first debate over the fare options earlier this month. During that meeting, the key sticking point was consideration of raising the cash fare on buses to $2.

Board member Muriel Bowser, a D.C. Council member and candidate for mayor in Tuesday's Democratic primary, recalled that General Manager Richard Sarles had said in December that the surcharge was no longer needed. "You want more money, and you want it to come from the bus riders," she complained to her colleagues at the March 13 meeting.

With the fare set at $1.75 for all bus riders, Bowser said Thursday, "I feel comfortable about where we've landed" on fare increases.

Bowser voted in favor of the new fare structure when it was approved by the board's finance committee. Because the entire board sits on the finance committee, final adoption of the new fares by the full board later in the day was certain.

Asked if he thought the fare changes would lead to a drop in revenue, Sarles said, "Certainly, whenever you increase the price of anything, there will be some reduction" in demand. "But we think, in this case, because the fare increase is so modest, the reduction will be very, very modest," and will be offset by normal "organic growth" in ridership.

On Metro's Red and Orange lines Thursday, a few riders said they were unaware of the fare increase and weren't concerned about it. But others took the opposite view.

"It all adds up, and pretty soon some people can't afford it," said Laquita Bowles, 26, of Hyattsville, Md. On another train, D.C. resident Jeneise Campbell, 29, said, "I think it's already too expensive. Like for me, a single person, I have to pay rent in the District and transportation to go with that. And it's just a lot."

The Metro board granted some relief to patrons of MetroAccess, the federally mandated van service for people with disabilities who aren't able to use the rail or bus systems.

Currently, the cost of a MetroAccess ride is double whatever the fare would be for a bus or train ride between the same two points, up to a maximum of $7. The new budget lowers the fare cap to $6.50 for MetroAccess users, many of whom are among the neediest of Metro's customers.

The proposed budget that Sarles presented in December called for no change in the formula used to set MetroAccess fares. But during the board's six public hearings on fare increases, paratransit users pointed out that the formula links their fares to the rail and bus fares. So they would wind up paying more if rail and bus fares rose.

The fare increases are expected to take effect June 29.

The 29th is the date used in the board's resolution, and it also conforms with Metro tradition to impose fare increases on the weekend before July 1, so that any glitches can be resolved before Metro faces its first rush hour with new fares.

The operating budget approved Thursday is separate from Metro's proposed $1.14 billion capital improvement budget for the next fiscal year, which the board will begin debating in the weeks ahead.

Metro increased fares this year, and they want to avoid another fare increase, although this is certainly a possibility.

Some board members already have balked at the idea of a large boost in subsidies. But if such an increase is not forthcoming, Metro spokesman Dan Stessel said, "then there are some really difficult choices that the board is going to have to wrestle with. And that's when you start talking about running trains less frequently."

The potential consequences are detailed in a section of the 40-page budget proposal titled, "More Aggressive Cost Cutting Needed If Funding Is Not Available."

Translation: Fewer trains.

The overall budget proposal for the next fiscal year calling for $3.1billion in spending on capital improvements and day-to-day operations will be made public Monday and formally submitted Thursday to the board's finance committee, officials said. The overall budget this fiscal year is $2.9billion.

2nd Article - Full

Metro: Stagnant rail revenue next year means local governments will have to pay more:

Metro's budget planners issued a pessimistic forecast Mondayfor the next fiscal year, saying they anticipate no increase in subway ridership in the 12 months starting July 1, 2015, meaning Washington-area governments would have to boost their financial contributions to help the transit authority pay its bills.

Facing higher day-to-day costs without increased income from rail fares during the next budget period, Metro probably would need $898 million in subsidies, largely from the local jurisdictions it serves, according to the forecast. That would be an 18 percent increase over the current fiscal year's total of $758 million in subsidies.

The budget forecast is on the agenda for discussion at Thursday's meeting of the finance committee of Metro's board of directors. The committee won't start formulating the next budget in earnest until early 2015. The agency's current budget is nearly $3 billion, including operating costs and planned capital expenditures.

Fares from bus riders and clients of MetroAccess, the van service for the handicapped, are projected to go up in the next fiscal year, which would partially mitigate the lack of growth in rail fares, planners say. Still, with stagnant rail ridership, they anticipate that overall operating revenues (from fares, parking, advertising and other sources) will drop by 1 percent from $946 million in the current fiscal year to $933 million in the 12 months beginning in July.

That decline might not seem significant, until it is weighed against the transit system's projected day-to-day operating costs. Those expenses are projected to increase by about $100 million from $1.76 billion in the current budget to $1.86 billion in the next fiscal year as a result of inflation, contracted pay raises for unionized workers and other factors.

Because Metro's board enacted fare hikes this fiscal year, and it has a policy of not doing so in consecutive years, the forecast assumes that riders will not be forced to bear any of the burden of the agency's increasing expenses.

"We will have to do whatever can be done to control expenses and then work closely with the jurisdictions to determine how to provide the same level of service without asking our customers to pay more," board member Mortimer Downey, chairman of the finance committee, said in a statement. "We recognize that affordability is fundamentally important to our commuters."

The reasons for the anticipated lack of growth in subway ridership have to do with federal tax regulations concerning employer contributions to their workers' commuting expenses.

In 2013, under Internal Revenue Service rules, companies were allowed to set aside as much as $245 monthly from an employee's pay, before taxes, if the worker wanted to use it for transit fares or parking. The parking allowance is now $250. But the fare benefit has dropped to $130 amid disputes on Capitol Hill over tax reform.

The federal government gives workers a direct payment to cover commuting costs instead of taking it from their pay. Metro riders who receive that direct benefit have felt the worst pain, dollar-wise, with the maximum monthly allowance now reduced to $130.

"Historically, annual rail revenue growth has helped offset inflation and other expense drivers," the forecast points out. The budget planners think many more Metrorail users will give up on the subway and drive to work instead, "due to the ongoing effects of anti-transit tax policy, which subsidizes parking at 88 percent more than bus and train travel, for both federal employees and private-sector workers using pre-tax commuter savings programs."

Metro's chief financial officer, Dennis Anosike, said in a statement: "The decrease in the transit tax benefit has penalized a broad cross-section of Metro riders both private-sector workers and federal employees alike. There's no doubt that some commuters traveling longer distances are now finding it more affordable to drive than ride, and that needs to change."

Despite the difficult revenue situation, the budget planners said, Metro in the next fiscal year intends to push ahead with a number of initiatives, including overhauling the fare payment system in rail stations, improving Metro's contracting procedures after a major recent lawsuit settlement, and tightening the agency's much-criticized management of federal grant funds.

A new office within Metro the Internal Control and Compliance Office "will have organization-wide responsibility for adherence to proper financial management controls, processes and procedures," the budget forecast says. It also says that Metro's internal auditing office will focus less on issuing reports and more on providing officials with "procedural compliance assistance."

As for next fiscal year's capital improvement budget, the planners say it is difficult to offer a cost projection because of continuing uncertainty over Metro's planned investment in a new generation of rail cars known as the 7000 series.

Metro has ordered 528 of the new cars, and it has contracted options to purchase 22o more from the manufacturer, Kawasaki Rail Car, in Lincoln, Neb. Having 728 of the 7000-series cars, Metro officials have said, would allow the transit agency to reach its goal of easing rush-hour congestion by running only eight-car trains (and no six-car trains) on all six subway lines during peak morning and evening travel periods.

Officials have said that buying those 220 cars and upgrading the subway's infrastructure to accommodate all eight-car trains during rush hours would require a $1.4 billion investment by the Washington-area jurisdictions served by Metro. Transportation officials from Maryland, Virginia and the District have been meeting this fall to decide whether to make that investment.

If the funding isn't in place by early summer, the transit authority will lose its options to buy the cars from Kawasaki, and the plan for eight-car trains will be set back for at least five years, Metro has said.

General Manager Richard Sarles has said that expanding Metrorail's passenger capacity is important to the Washington-area economy in light of projected population growth. And the budget forecast echoes that view.

"To let this opportunity pass would be costly to the region and its transit riders, as a new rail car contract will cost more and take much more time to implement," resulting in "lost economic growth for the entire region," budget planners say.

Questions to Answer:

1. Draw a diagram for Washington Metro. Show me and explain what is happening in this industry as it relates to the reading. Be very specific as it relates to the changes in budgets, fares and trains.

2. What are two alternative approach that Washington, DC, could use to solve this situation (twopricing approaches). Explain and show on the graph.What are the impacts of these changes. Explain.